After Summers, Which Path Will the President Take?

09/21/2010 10:18 pm ETUpdated
May 25, 2011

Now that Larry Summers is leaving, the President has a decision to make. His choice of a replacement will send a signal about the next two years of economic policy. That signal can restore consumer confidence and reinvigorate the electorate, or it can lead to even more discouragement and despair. Today unnamed Administration officials floated the idea of naming a corporate executive to the position. That's a trial balloon that should be punctured immediately.

The thirty-year-old law school graduate who asked the President yesterday, "Is the American dream over for me?" might interpret a choice like that as a 'yes' -- unless he also happens to be a Fortune 500 CEO.

There's some confusion around today's news about Summers' end-of-year departure. Was it a rushed announcement? Did Summers choose to leave, or did he get the axe? Bloomberg News observed that Summers' departure leaves Tim Geithner as the sole remaining member of Obama's original economic team, which adds up to something that looks very much like a shakeup.

Or maybe not.

The Bloomberg article also quotes Robert Gibbs as saying "it is not a surprise," and it's true that it's common for Administration officials to leave after the midterm elections. For his part, the President lavished Summers with praise: "I will always be grateful that at a time of great peril for our country, a man of Larry's brilliance, experience and judgment was willing to answer the call and lead our economic team. Over the past two years, he has helped guide us from the depths of the worst recession since the 1930s to renewed growth."

Despite the kind words, the Wall Street Journal reports that "Administration officials say Mr. Summers' departure could reinvigorate the White House economic team." And there's this quote from the President's town hall meeting yesterday (via David Dayen): "Well, look, I have not made any determinations about personnel. I think Larry Summers and Tim Geithner have done an outstanding job... This is tough, the work that they do... they're going to have a whole range of decisions about family... the bottom line is that we're constantly thinking, is what we're doing working as well as it could?"

But for those who are hoping that this move signals a change in policy, we can zigzag back to the "no policy change" camp if we take this quote seriously (from the WSJ article:) "Those who know Mr. Summers say his departure has more to do with the need to recover from two tough years in which he worked brutal hours and often did not sleep."

In other words, we don't know nothin'. That means the Administration doesn't have to pay the political price for looking like it's in disarray. But it also means the President doesn't get the benefit of looking as if he's taking decisive action after seeing unsatisfactory results.

Here's what we do know: For middle-class Americans in search of economic relief, Summers' departure is hardly what you'd call a setback. According to all reports it was Summers who insisted on introducing a smaller stimulus package, back when Obama had the political clout to get whatever he needed to fix the economy. We're seeing the results in today's "jobless recovery." Ezra Klein quotes Stephanie Taylor of the Progressive Change Campaign Committee, who said his departure is "a big victory for anyone who voted for change in 2008 only to see Summers work from the inside to water down Wall Street reform, block President Obama's promise to protect Net Neutrality, and urge other pro-corporate positions."

The Bloomberg report tried to pin down the Administration's thinking about possible replacements. But by citing a variety of unnamed sources ("one person familiar with White House discussion," two people," "one person") we're left with a cloud of unknowing:

Administration officials are weighing whether to put a prominent corporate executive in the NEC director's job to counter criticism that the administration is anti-business ...White House aides are also eager to name a woman to serve in a high-level position ... They also are concerned about finding someone with Summers' experience and stature...

That's enough trial balloons to float an army of economists somewhere high above the clouds. (Whoever said "good idea" -- hey, that's not nice!) The President's choice will be watched closely by discouraged Americans like those he met yesterday. His appointment of Elizabeth Warren last week sent an encouraging message, not only to progressives but to middle class Americans who seem to have resonated with Warren whenever they've seen her. But whatever glow the Warren appointment cast will soon be outshone, for better or for worse, by this appointment.

Felix Salmon said that the idea of replacing Summers with a corporate executive is "a bit weird," and that's putting it mildly. I have nothing against corporate executives, having been one myself, but Salmon is right when he says that this position calls for an economist's technical expertise.

And that's not even considering the political ramifications. With poverty on the rise, record joblessness, the employed middle class struggling to make ends meet, and staggering numbers of mortgages underwater, delinquent, or foreclosed, the selection of a wealthy CEO would probably set off a political firestorm. One CEO mentioned in press reports was Richard Parsons, former head of Time Warner AOL and current head of Citigroup. Parsons is a very sharp guy, but does the Administration really think it can fix its public perception problems by naming the head of Citigroup as his senior economic advisor?

A CEO name that's getting even more traction is Ann Fudge. Ms. Fudge served as a senior executive at Kraft Foods before becoming head of Young & Rubicam. She's an impressive leader by any measure, and that includes the personal qualities she's integrated into her management style (although I have to admit that in my own executive life I tended to get very impatient with "team building" exercises like the ones she reportedly pushed at Young & Rubicam.) Fudge's background suggests she might surprise some people by bringing a more progressive perspective. But she brings some political baggage, too. She sits on the President's Deficit Commission, which is becoming increasingly controversial because of its co-chairs' shared antipathy toward Social Security. She also sits on the board of Novartis, and pharmaceutical companies aren't very popular.

Ann Fudge would be a great choice for a cabinet position with greater management responsibility -- Commerce would be ideal -- but putting any business person into this slot right now could pose real problems for the Administration.

In any case, a CEO appointment won't placate the executives who complain that "Obama doesn't like us." That's just a ploy to intimidate him into giving them what they always want: less regulation. If he names an executive to this position, they'll just use a new ploy. Besides, the Administration already has a senior business executive on its economic team: Jacob Lew, who is being nominated to run the Office of Management and Budget. Lew is both an economist and a former executive who was the COO of Citi's Alternative Investments unit. That means the Administration already has its private-sector leader on board (although the fact that Lew received a $950,000 bonus after the bank was bailed out may make it something they're not eager to advertise).

But if he doesn't pick an executive, who should he choose? The President could start by considering the economists who were right from the start -- about deregulation, about the housing bubble, and about the need for stimulus. And for academic credentials, he could go straight to the top of that group by seeking out a Nobel laureate. Imagine the spike in consumer confidence we'd see if Paul Krugman or Joseph Stiglitz got the nod. (Hey, a guy can dream, can't he?) Since the Republicans won't work with the Administration anyway, there's no downside.

Alright, alright -- I know. He won't do that. But if not Krugman or Stiglitz, then who? Given the Administration's appropriate emphasis on finding a woman for the slot, one interesting choice might be Janet Yellin, President of the Federal Reserve Bank of San Francisco. She's been a little more pro-growth and pro-employment than many of her peers. Laura D'Andrea Tyson, who's been arguing cogently and forcefully for more stimulus spending, could be an excellent candidate.

Our number one concern right now is jobs. So if we're looking at men as well, Robert Reich would be an inspired choice. While he's not an economist, he is a former Secretary of Labor. He's also an articulate and outspoken advocate for policies that will put people back to work. Washington insiders might be appalled, but Reich would bring a much-needed perspective and would send an encouraging signal to disaffected voters. He'd also make a great spokesman for Administration policies.

Jared Bernstein would be a very good choice, and as Joe Biden's chief economic advisor he's already on the team. (Maybe -- I don't know how the turf's laid out in this Administration.) And while I've been critical of Jason Furman on a couple of issues (Wal-Mart, the so-called "excise tax"), he's smart and dedicated and would provide an excellent counterbalance to some of the Administration's other players.

This is all just speculation, of course. But the President has the opportunity to set a new economic course for his Administration. By choosing a CEO he would be signaling a turn to the right, a capitulation to the special interests and political groups that will dog him no matter what he does. By choosing another economist in the Rubin/Summers mold, he would be telling a disgruntled American electorate that it can expect more of the same. But by selecting someone with a different outlook, he could help turn the economy around -- while injecting new life into the political debate at the same time.
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(Note to readers: Hey! Zach Carter and I have a new financial/economics blog over at Campaign for America's Future -- www.curbingwallstreet.org. Check it out -- we'll have economic commentary, updates on news items, and probably the occasional inappropriate musical reference, too. What's not to love?)

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Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America's Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.